Three essays about monetary policy in China

Abstract

The thesis focuses on three aspects of China's monetary policy since the 1980s. Chapter 1 examines the monetary policy actions of the central bank in China. A new policy stance index incorporating a range of di erent monetary policy instruments is developed and examined. The empirical results suggest that the PBC is informally targeting in ation although no explicit target has been announced. Chapter 2 focuses on China's monetary conditions and aggregate demand in terms of the monetary conditions index (MCI). Di erent transmission channels are considered through which monetary conditions might in uence aggregate demand. The empirical tests show that the MCIs contain useful information about future output growth and in ation in China over the short and medium term. Chapter 3 examines the scal challenges to the monetary authority's control over the price level in China. The empirical result suggests a scal dominance regime. When a pegged exchange rate regime is considered, it is argued that in the presence of large capital in ows and strong central bank interventions, the monetary authority can generate seigniorage without worrying about the foreign exchange reserves to decrease.